The making of an excellent stock picker
Coronation’s Tony Gibson discusses how the markets have changed over the decades and considers what the future holds for the local asset management industry.
with over three decades’ experience, asset manager Tony Gibson is perhaps best remembered by members of the older generation for having been a consistently successful stock picker in the 1990s. He commenced his career with the former UAL in the mid-1980s, was a pioneer of the former Syfrets unit trust operation in the late 1980s, was a founder member of Coronation in 1993 and has held several prominent positions in it since then. He now manages Coronation’s fund of funds portfolio.
Leon Kok spoke to him last month. Here are excerpts from their conversation:
Famously, you and BoE’s Chris Logan were the fledgling industry’s star portfolio managers and fought for prominence quarter in and quarter out. Neither of you ever missed a beat!
To be honest, relative to today, the environment was pretty much the “Wild West”. As the saying goes, “You should never confuse genius and luck.” Was I a brilliant stock-picker? No. I was lucky to be invested in the right stocks at the right time.
Let me fast forward this to today. I probably wouldn’t get the same job at Coronation today, because my CV wouldn’t be good enough. Many of those coming into the industry now are brighter than I was – smarter and more competent.
What were some of your earliest stock-picking winners?
My biggest success, perhaps, was Trencor, which I happened to identify well before my peers did. Others included successful mid-caps back then such as Hudaco, Delta Electric and Foschini. Additionally, in the 1980s, mining stocks made up 75% of the index. I mostly avoided mining stocks. What you don’t own is also important!
With our clients’ retirement funds, I also happened to sense that inflation was entering a period of secular decline after the rise in the early 1980s. I bought a lot of call options on long-term South African bonds, and that came through very well.
What makes a good stock picker?
An amalgam of things. Obviously one needs to be financially very numerate and analytical. But you also need perspective and understanding of investment history. You will of course need to be able to deal with the bumps in the road along the way. The more conviction you have in your research, the more you’ll be able to withstand those bumps.
On the other hand, there also needs to be flexibility of mind. In being dogmatic, there is a big difference between conviction and stubbornness. It’s important that, when you see the writing on the wall, you’re able to recognise it and say, “I’m wrong.”
A new dimension that has become important – at Coronation, certainly – is to be mentally strong and constructive. If an applicant fails their psychometric tests, we don’t go further with them. You also have to be a team player, because if you aren’t, it could be destructive.
What were your worst nightmares?
There were two in particular. The first was very early on in Coronation’s life, when we invested in JCI based on inadequate modelling. We still remind ourselves regularly of this bitter lesson.
The second mistake was when we placed money in a hedge fund that went under. In hindsight, I should have done more due diligence about the fund manager. That was a low point of my career due to the fact that it was entirely my fault.
Some would argue that SA is headed for a sharp decline during the next 10 to 20 years. What is your view?
We are not looking good right now. If anyone thinks that a new president will take over in 2019 and clean things up overnight, I would strongly challenge that view. We have deep structural issues that need fixing. Of course, with a 20-year horizon, there is always hope. But this will need visionary leadership, coupled with a mindset change in the population with regard to productivity and a will to succeed.
What is the outlook for the domestic asset management industry?
Probably, the biggest issue worrying me is that the world hasn’t resolved what caused the financial crash nine years ago. You now have a whole generation of people in the industry who only know a close-to-zero interest rate environment. This is a dangerous situation.
The potential re-emergence of inflation is a particularly critical issue for investors. This is partly because benign inflation has bred investor complacency, and that complacency has become even more entrenched in the nearly nine years since the financial crisis. As a result, investors are not quite sure how to assess risk.
Central bankers can and do frequently get things wrong. Not because they’re doing things duplicitously, but rather due to the reality that they are seemingly blind to the bubble-creating effect their policies have had during the past two decades. As we know, bursting bubbles can devastate both investment markets and the real economy. ■ Manager of Coronation’s fund of funds portfolio